Central and Eastern Europe’s ICT/ITO Profiles: EU members

Posted: April 28, 2010 in Market Research

Poland

The Polish IT service spending is about to reach USD 3 billion in 2010. It is the fastest-growing sector of the national IT market and is expected to rise to USD 4.5 billion by 2014. Systems integration as well as hardware and software support and installation still collectively account for more than one-half of the total IT spending, while software market accounts for around 20% of the total IT market.

The most active users of the Polish ITO services are large multinational companies such as ABB, Avio, Fujitsu, Glaxo Smith Kline, IBM, Intel, Lincoln Electric, Motorola, Oracle, Siemens, TRW Automotive and Whirlpool. Germany accounts for almost 35% of all IT outsourcing deals in Poland.

The largest segments of the Polish software outsourcing market are financial and accounting software, payroll applications and office programs (e.g., Symantec anti-virus software).

In 2008 the Polish government formally adopted the National IT Infrastructure Plan as a response to a significant slowdown in the public sector IT spending. This Plan aims to improve the general level of current IT infrastructure in the country.

The Internet market continues to be constrained by high telephone charges and relatively low levels of computer penetration. Moreover, there are wide regional disparities, with internet penetration about twice as high in urban as in rural areas. How broadband will develop in the longer term will greatly depend on the Polish regulator’s success at forcing Telekomunikacja Polska (TPSA) into a functional split, as well as its continued liberalisation of the market. According to Poland IT Report Q1 2010 (by ReportLinker) , the regulator believes that the split will happen in 2010 or 2011, but there are high risks that it could be delayed longer than this.

Romania

As a relatively new EU member, Romania is being transformed into a broader ‘EU’s information society’ by various programs and an inflow of EU funds. For the period of 2007-2010 Romania’s Information and Communication Technology market value has reached nearly EUR 383 million, with its IT services market to be worth USD 343 million.

The recession affected IT demand across several sectors. IT services spending is projected to increase USD 495 million by 2013 (at a CAGR of 10%), driven by an inflow of EU funds and foreign investment. In 2010 demand for enterprise software and ERPs is considered to be an underlying driver for IT services market evolution.

Romania is emerging as one of the largest CEE players in the electronics outsourcing industry.

Romania has extensive expertise in R&D outsourcing, especially in such niches as embedded software, chip design and information security. However, today the country is facing significant IT labor shortage.

Romania is getting support from the World Bank in improving its rural broadband access, which is now still under-developed compared to other CEE countries such as Hungary or Poland.

Among the major outsourcers to Romania are the large global companies such as Wipro, Accenture, HP, Oracle, Bosch, Genpack, Unicredit etc.

Romania has the corruption index 4, which is the highest in the EU. This fact withdraws some of the Western European customers from doing business there (Global Corruption Survey by Transparent International, 2009).

The outsourcing activity is not yet recognized as a distinct and prospective business direction by the Romanian government. As a result, the state provides no significant incentives for investments in the development of the ITO industry.

Hungary

Hungarian IT services market has reached almost EUR 802 million in Q1 2010, up 21% from 2007, which makes more than 40% of the total IT market value.  As of January 2010, Hungary’s net wages in all industries, including IT, increased by 12.9% in twelve months, with real wages up 6.1% year on year (Hungary’s Central Statistical Office, 2010). The rising salaries in the national IT market make outsourcing to Hungary a way more expensive than to Ukraine or Romania.

Hungarian IT market has developed a strong project services segment, which accounts for nearly 60% of the general service offering. Project services market has grown at a 10.7% CAGR in recent months, driven by local and central administration projects and ERP implementation in small and medium enterprise sectors.

The end-to-end ITO sector is over-concentrated with top ten market leaders accounting for almost 80% of the market. It makes significant barriers in the way of new market entrants, forcing them to look out for their own niche to survive in the competition. Application hosting is one of such niches.

Captive outsourcing (ODC/NDC) is only beginning to gain ground in Hungary’s IT sector.

The demand in the Hungarian IT outsourcing market concentrates on desktop and system hosting and operating services. Additionally, Hungary has extensive expertise in game and process control software development. This trend is explained by the IT industry’s focus on software projects with predictable return on investment (ROI).

Hungary ranks top for per capita ICT expenditure and ICT expenditure as a percentage of GDP in the CEE region, while ranking near the bottom of the EU innovation rating.

The Czech Republic

Although the Czech ICT market represents barely 1% of the total EU market, it is still one of the third largest in Central and Eastern Europe.

The Czech ICT channel is characterized by a strong presence of resellers (41%) and service companies (33%).

 The biggest area of concentration of ICT channel players remains the capital region with almost 1/3 of the total channel population. The South Eastern part of the country is in a development phase, as more ICT companies are making their appearance in the area.

ITO opportunities exist in integrated security solutions, advanced communication systems, financial systems, healthcare, mobile applications and mobile content platform development as well as new digital technologies, mobile applications and e-commerce solutions.

As of 2009, the country’s software market reached EUR 618 million and IT services market – nearly EUR 1,2 billion.

Both IT salaries and operating costs are rather high in the Czech Republic, which makes it a less favorable outsourcing location compared to its slower developing neighbors such as Ukraine or Bulgaria.

Slovenia

In 2009 Slovenia’s IT spending reached nearly EUR 734 million. In 2008-2009 Slovenia implemented a number of IT projects, making use of both local and EU funds.The software market in Slovenia is projected at EUR 165 million in 2010, with a return to low single growth following a sharp deceleration in 2009.

 Slovenia is a relatively mature software market for the CEE region, but still lags behind its neighbors (e.g., Ukraine) in terms of strong vertical specialization. Seventy-nine percent of all software companies are large enterprises specializing mainly in ERP applications. Web applications development is still immature and lacks necessary resources, able to provide innovative solutions. In 2009, despite the economic downturn, IT services companies continued to benefit from IT projects tendered across various sectors ranging from the public sector to banks, education, retail and financial institutions. In the long term, the IT services market is set to expand as Slovenian organizations upgrade IT systems to gain or maintain competitive advantage following EU accession. Along with this, the operating costs and IT salaries are expected to rise, too.


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